OECD’s Gurría backs Abe’s move on VAT

01/10/2013 – OECD Secretary-General, Angel Gurría, congratulated Japanese Prime Minister Abe on his announcement today that Japan will raise its consumption tax as legislated from the current 5% to 8% next April.

“With public debt now at around 230% of GDP and a comparatively low tax burden on consumption, the tax hike is crucial to assure the world that Japan will strengthen its public finances”—said Mr. Gurría. “As Mr. Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10% in 2015.”

The OECD notes that the tax hike is the first of many steps needed to achieve Japan’s target of primary budget surplus by 2020. It encourages Japan to develop a detailed and credible fiscal consolidation plan to further strengthen confidence in Japan’s public finances. Rapid population ageing makes the need even more pressing: Japan’s population, already the oldest among OECD member countries, is projected to remain the oldest through 2050, putting upward pressure on public social spending.